Small Business Debt Help: 5 Places to Start When Payments Compete

When there isn’t enough money in the business account to cover payroll, the IRS, the SBA loan and the merchant cash advance withdrawals all at once, many business owners struggle with which payments to prioritize. For anyone in this situation, here is where you could start:

• start with the payroll taxes first and get current on them, because the owner can be personally liable for those;
• look at options like a payment plan for the IRS debt;
• for an SBA loan, ask the lender about options for relief and see what they say;
• stop stacking merchant cash advances until you get a handle on the situation, and read those contracts;
• and look at free sources of help, like SCORE mentors.

Depending on your situation, you might have the option of filing a Subchapter V bankruptcy.

Payroll taxes come first because the IRS may hold every responsible person who willfully fails to pay the taxes personally liable for a penalty equal to the full unpaid trust fund tax. The owner who failed to pay the tax but chose to pay rent or loans instead would probably be showing willfulness.

The owner should then look into setting up a payment plan with the IRS. With a simple installment plan for your business tax debt, if the owner owes $25,000 or less in total with trust fund taxes, or $50,000 or less if the debt does not include trust fund taxes, then the owner can set up the plan without giving a financial statement or a lien determination. The owner should make sure to get all of the filings for all open quarters done before setting this up. A condition of a simple installment plan for trust fund taxes is that the business must pay the whole balance off before the expiration date on IRS collections. Businesses cannot apply online for an installment payment plan. They have to call the number on the IRS notice or 1-800-829-4933, which can take a while, or visit a taxpayer assistance center in person.

For SBA COVID-19 Economic Injury Disaster Loans, cut your payment in half for six months to get some breathing room; to do this, contact the SBA to confirm you qualify, if your loan is under 90 days past due. You can do this once every five years. The interest will keep accruing through the six months of lowered payments. If the SBA makes it 120 days without receiving a payment, it may refer the loan to the Treasury Offset Program.

MCA Contracts

Pay particular attention to the MCAs. MCAs will typically reduce cash flow by requiring daily or weekly payments, which you need for payroll and rent instead. Because they are so fast, these loans also become what is called “stacked.” One common definition of “stacking” is adding another loan to pay off a previous one. People can fall into the business equivalent of a payday loan spiral in this way. The process can easily lead to overdrafts, bank fees, missed payments, payroll debt, tax debt, and defaults on multiple merchant cash advances and loans. Many times you will need a new merchant cash advance to pay off an old one, when you should really be paying suppliers, rent, tax withholdings and employees instead. Look at the contracts you signed for those loans, especially any personal guarantees you might have signed.

Check your other loans too: a bank holding a line of credit or an SBA lender may have made the credit available with a lien on business receivables or deposits in return. The note creating the debt might also prohibit the company from taking on more debt. Beware: piling on that debt may violate the terms of that old SBA loan, triggering a technical default, even if you’re making your regular payments.

An MCA company can say that you are selling future receivables, but if the “advance” has to be repaid at a set rate even if sales drop, it might look like a fixed loan. In business lending, the “personal guarantee” you may have signed means that if the business defaults and closes, you the owner may personally owe the debt to the lender. In the State of Texas, as of September 1, 2025, statutory law voids “confession-of-judgment clauses” in MCA contracts.

Before taking out another MCA ask yourself: How much will I need to pay, and on what schedule? What if sales slow down? Will I be personally liable for this? Do I need permission from my line of credit lender to take this? Decide if it is right for you: look into the terms of the advance agreement, because whether the business can afford it can depend on the amount, the repayment terms, and whether those terms have some flexibility in case of a business downturn.

Free Sources of Advice and Help with Their Finances

You should also look to free sources of advice and help with your finances. For instance, the US Small Business Administration funds a nonprofit called SCORE which offers small businesses free mentoring from more than 9,000 volunteers.

The Subchapter V Small-business Provisions

You can file a case under the Subchapter V small-business provisions of Chapter 11 bankruptcy for a business with up to $3,424,000 in total debt, for cases filed on or after June 21, 2024. This option, for businesses that qualify, skips the quarterly U.S. Trustee fees.

If the business is a legally registered LLC or corporation, its debt is normally not automatically also the personal debt of its owner. In bankruptcy, a business owner may in some cases discharge debts resulting from their personal guarantees of business debt. The MCA may claim the owner made hidden debts or false statements to fight that discharge. In a bankruptcy, the case trustee may contest certain payments or transactions made within two years before the filing. Anyone considering this step should consult an attorney and remember to never move assets in anticipation of filing bankruptcy.

Whatever order you pay in, own up to your debts and make disclosures. Read what you sign. Of course, each business owes a unique combination of debts, and each case depends on its own set of facts and documents. That said, for one business with a life-threatening run on its bank account, here is where I would start:

• get current on the payroll taxes;
• look at options for cutting deals with the SBA and IRS;
• stop the stacking on merchant cash advances for a while;
• and look for free sources of advice.